COURT FILE NO.: CV-16-546245
DATE: 2016/12/20
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: KELOWNA FLIGHTCRAFT AIR CHARTER LTD. cob as KF CARGO, Plaintiff/Moving Party
AND:
KALES GROUP BV, KALES AIRLINE SERVICES BV et. al Defendants/Responding Parties
BEFORE: MASTER RONNA M. BROTT
COUNSEL: David Foulds and Diana Weir, for the Plaintiff
Fax: (416)777-7414
Sam Rogers, for the Defendants
Fax: (416)868-0673
HEARD: December 12, 2016
ENDORSEMENT
[1] The plaintiff Kelowna Flightcraft Air Charter Ltd. cob as KF Cargo (“KFAC”) brings this motion pursuant to Rule 45.02 of the Rules of Civil Procedure. The plaintiff seeks an order requiring the defendants to pay into court the sum of 732376.72EUR or the Canadian equivalent.
[2] This action arises out of a General Sales Agreement (“GSA”) entered into between the plaintiff, an air freight company and the defendants, Kales Group BV, Kales Airline Services BV, Kales Airline Services (Canada) Inc., ACT Aerofreight BVBA and Aviationplus BV, (“the defendants”), air freight sales agents. The defendants are all part of the same group. Kales Airline Services (Canada) Inc. operated as the air freight agent for the plaintiff for flights from Toronto to Brussels, while the other defendants operated as the agents for flights from Brussels to Toronto.
[3] The defendants sell space on airfreight flights to commercial customers. The defendants had numerous other GSAs with other freight airlines. Each week (or month) the defendants prepare a report for each of the airlines with whom they have GSA agreements. The report lists all of the sales that were made for the week (or month) in question.
[4] Each GSA has different payment provisions as the defendants are required to pay each of the various airlines on different schedules. For one, they may have to pay within fourteen days, whereas for another they may have to pay in ninety days. Pursuant to the GSA with KFAC, the defendants were to remit cargo sales revenues on a monthly basis, within thirty days of the end of each month.
[5] KFAC agreed to pay to the defendants a commission of 3% of gross revenues on cargo sales. As well, KFAC agreed to reimburse them for the direct employment cost of one employee (later increased to two) in Brussels. Pursuant to the terms of the GSA, the defendants would deduct these amounts from the cargo sales revenues before remitting the balance to KFAC.
[6] On or about November 20, 2015, KFAC gave notice that it would be terminating its air cargo service. The defendants refused to pay to the plaintiff the cargo sales revenues for the period October 1, 2015 to November 30, 2015. The defendants admit at paragraph 60 of its Statement of Defence and Counterclaim that it is holding the cargo sales revenues and justifies its refusal to remit the funds by advancing a counterclaim or set-off for $6 million based on allegations of lost profits, damage to its business reputation and breach of the exclusivity clauses.
[7] Rule 45.02 provides as follows:
Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just.
[8] The relief sought is extraordinary and is to be granted with caution. The test to be applied is not in dispute. The Court of Appeal in Sadie Moranis Realty Corp. v 1667038 Ontario Inc., 2012 ONCA 475, stated as follows at paragraphs 17-22:
[17] Rule 45.02 is part of Rule 45, which, as its title suggests, provides for the interim preservation of property pending litigation. The Rule is a limited exception to the law’s deep-seated aversion to providing a plaintiff with execution before a trial. The risk of such an order, because of its invasive nature, is well explained by Sharpe J.A. in Injunctions and Specific Performance, 4th ed., looseleaf (Toronto:Canada Law Book, 2012), at para. 2.760:
Clearly, pre-trial execution of any kind poses definite problems. Attachment of assets or interference with disposition of assets will often constitute a serious interference with the defendant’s affairs. That interference may be more readily justified where the plaintiff’s right is specifically related to the asset in question. However, where the plaintiff asserts a general claim and looks to the assets only as a means of satisfying a likely or possible monetary judgment against the defendant, interference with the defendant’s asserts is more difficult to justify.
[18] In my view, the policy approach dictated by this caution must inform the test required by rule 45.02. In News Canada Marketing Inc. v. TD Evergreen, a Division of TD Securities Inc., [2000] O.J. No. 3705, 100 A.C.W.S. (3d) 45 (S.C.J.), at para. 14, Nordheimer J. put forward a test which does that, and which I would adopt: [page 405]
I conclude therefore that the appropriate test for relief under rule 45.02 should require the plaintiff to establish that:
(a) the plaintiff claims a right to a specific fund;
(b) there is a serious issue to be tried regarding the plaintiff’s claim to that fund;
(c) the balance of convenience favours granting the relief sought by the plaintiff.
[19] The first of these requirements, the one under special scrutiny in this appeal, faithfully reflects the language of rule 45.02. It requires that there be a specific fund readily identifiable when the order is sought. It also requires that the plaintiff assert a legal right to the specific fund as a claim in the litigation. While I do not find it to be a helpful descriptor, I think it is in this sense that past jurisprudence has sometimes described the specific fund as “earmarked to the litigation”.
[20] The second and third requirements, though not centrally in issue in this case, are equally important in manifesting the policy behind the rule. They ensure that interference with the defendant’s disposition of assets is limited to cases where the plaintiff has a serious prospect of ultimate success, and there is something compelling on the plaintiff’s side of the scales, such as a real concern that the defendant will dissipate the specific fund, that is sufficient to outweigh the defendant’s freedom to deal with his or her property.
[21] Framed in this way, the test will not be met where a plaintiff’s claim is for damages. That is so even if a specific fund is identifiable in the factual matrix of the litigation, because a claim for damages is not a claim to a legal right to that fund. In Assante Financial Management Ltd. v. Dixon, [2004] O.J. No. 2237, 8 C.P.C. (6th) 57 (S.C.J.), Wilton-Siegel J. put it this way, at para. 28:
There is a subtle but important difference between an amount that may be owing to the plaintiff and a “right” of the plaintiff to a fund.
[22] Where the test is met, the order secures the specific fund claimed by the plaintiff pending the outcome of the litigation. The order is distinguishable from a Mareva injunction (with its even stricter test), where the defendant is restrained from dealing with its own assets pending trial even though the plaintiff is not asserting a legal right to any of those assets.
[9] Master Muir in Retrocom Investment Management Inc. v Davies Smith Developments Inc. 2014 ONSC 6128, succinctly outlined the key principles as follows:
• a Rule 45.02 order is a limited exception to the law’s deep-seated aversion to providing a plaintiff with execution before a trial;
• a plaintiff must be claiming a legal right to a specific fund;
• the fund must be readily identifiable when the order is sought;
• there must be a serious issue to be tried with respect to the plaintiff’s claim to the fund;
• the test will not be met if the plaintiff’s claim is really a claim for damages rather than a claim to a specific fund.
[10] The plaintiff relies on the defendants’ admission in their Statement of Defence and Counterclaim that they are holding the cargo sales revenue. Further they assert that the delivery of the weekly sales reports for October and November confirms the existence of “a specific fund”.
[11] The defendants’ evidence is that they never segregate the funds in any way nor do they establish or maintain any fund. The defendants operate a general corporate account. The monies are never differentiated – not when the funds are collected; not when the funds are deposited and not when the funds are paid out. Monies received from customers are deposited and are then paid out to the various airfreight carriers – not only to the carrier who provided the service to that particular customer.
[12] The GSA does not contain any provision which establishes a trust relationship whereby the defendants held money in trust for KFAC. Nor does the GSA entitle the plaintiff to a legal right to any specific fund.
[13] With respect to the plaintiff’s reliance on the weekly sales reports, it is noteworthy that those show sales only – not revenue. The report is generated whether the defendants’ customers have paid for the specific airfreight carrier’s services or not. The defendants, pursuant to the GSA, are obligated to pay KFAC whether or not the customer has paid. So, when the money is actually paid, it is not necessarily funds specifically earmarked for that particular airfreight carrier. There is no evidence of the defendants’ internal accounting practices. As there is no evidence of what is paid by each customer, one cannot conclude that there is a specific fund.
[14] Here, the plaintiff has a claim for a debt that it is seeking to have paid by the defendants. The plaintiff’s claim is really a simple claim for damages. In response, the defendants are refusing to pay, and they have asserted a counterclaim.
[15] Just as in Retrocam, supra, at para. 8:
The defendant variously described those amounts as “profit share”, “amount accrued”, “amount to be paid” and “held funds”. Nowhere in the evidence is there any indication that those amounts were ever segregated into a separate account or investment vehicle. The evidence does not satisfy me that the defendant ever acknowledged that it had established or was maintaining a “fund”.
[16] I find that the plaintiff does not have a right to any specific fund. In my view, the plaintiff is attempting to define the claim as an entitlement or a right to a specific fund in order to obtain security over the funds in the defendants’ general account. As there is no readily identifiable fund, there should be no interference with the defendants’ assets before trial.
[17] On the second part of the test, I find that there is not a serious issue to be tried with respect to the specific fund. The plaintiff falls short of meeting its burden of showing a serious issue as the plaintiff has failed to disclose the documents (the air way bills) that it relies on to establish ownership. Nor is there any explanation of how or why an air waybill could establish ownership of the specific fund. Last, there has been no finding of any legal right to any specific fund.
[18] The third part of the Rule 45.02 test requires the plaintiff to establish that the balance of convenience favours the granting of the relief sought. The plaintiff attempted to put forth evidence of a real concern that the defendants would dissipate assets/the alleged specific fund. The defendants’ evidence, from Mr. Kales, CEO of the defendants, is unequivocal that the defendants can pay, and will pay, if required to do so by the court. In light of Mr. Kales’ evidence, I am not satisfied that the plaintiff’s concerns outweigh the defendants’ right to deal with its own property.
[19] To grant Rule 45.02 relief in these circumstances would, in my view, amount to execution before judgment. I am not prepared to interfere with the defendants’ assets prior to the determination of the contractual issues. To keep the status quo maintains a more level playing field. There is insufficient evidence from the plaintiff to justify the extreme remedy it seeks.
[20] For these reasons, the plaintiff’s motion is dismissed. The parties exchanged costs outlines at the end of the hearing and they agreed to attempt to agree on the issue of costs. In the event that they are unable to reach an agreement, the defendants shall within 30 days serve and file brief (1 – 2 pages) costs submissions. The plaintiff shall respond with brief (1 – 2 pages) submissions within 15 days following receipt of the defendants’ submissions.
(original signed) ______________
MASTER RONNA M. BROTT
Date: December 20, 2016